How do manager incentives influence corporate hedging?

Bihary, Zsolt and Dömötör, Barbara (2018) How do manager incentives influence corporate hedging? Working Paper. Corvinus University of Budapest Faculty of Economics, Budapest.

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We explain the diversity of corporate hedging behavior in a single model. The hedging ratio is obtained by maximizing expected utility that is a combination of the corporate level utility and a component that models the incentives of the financial manager. We derive a theoretical model that gives back the classic result of the literature if the financial manager has no other incentive than to maximize corporate utility. In the case the financial manager expects that his evaluation will be based exclusively on the financial profit (the profit of the hedging transactions), being risk averse, he decides not to hedge at all. The hedging ratio depends on the weight of these contradictory effects. We test our theoretical results on Hungarian corporate survey data.

Item Type:Monograph (Working Paper)
Series Name:Corvinus Economics Working Papers - CEWP
Series Number / Identification Number:2018/01
Uncontrolled Keywords:corporate hedging, corporate utility, manager incentives
JEL classification:F13 - Trade Policy; International Trade Organizations
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G34 - Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Divisions:Faculty of Business Administration > Institute of Finance and Accounting > Department of Finance
Subjects:International economics
Business organisation
ID Code:3360
Deposited By: Veronika Vitéz
Deposited On:26 Feb 2018 11:35
Last Modified:26 Feb 2018 11:38

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